December 5, 2018
Dear Friends and Family,
Capitalism today is the dominant economic system of the world. Very few countries have a socialist economy, albeit many have attempted to enact such a system permanently, but failed to sustain one for any length of time over the course of the last 200 years.
My Takeaways:
The World Economy:
The chart below which shows the Gross Domestic Product by Country in 2017, which I found most interesting in light of this series. My first takeaway was the relative absence of any countries with a socialistic economy. (Note: Today China has a capitalistic economy which we will learn more about in segment 16)
Dear Friends and Family,
Capitalism today is the dominant economic system of the world. Very few countries have a socialist economy, albeit many have attempted to enact such a system permanently, but failed to sustain one for any length of time over the course of the last 200 years.
My Takeaways:
- Capitalism is a system of mass production for the satisfaction of the masses. It puts the masses in control; for if they don’t purchase the product in large quantities, the producer of the product will go out of business.
- In 1900, over 50% of the U.S. production power was provided by animals and men. But after 50 years of capitalistic development, that dropped to 2%. That change not only resulted in huge standard of living improvements, but also reduced working hours with less physical exertion for the common man.
- Capitalism has given the world greatly advanced new products of substantially higher quality, as it spurred innovation and competition.
- Capitalism has not only enabled the citizens of our country to meet their basis needs of food, clothing, and shelter, but importantly has provided the opportunity to attain self-satisfaction, pride, and economic security that one can tailor for themselves so as to satisfy their own desires.
- It has been proven time and again throughout the history of the modern world that if a society wants to get out of poverty it needs to fully adopt capitalism as the means, e.g. South Korea, Singapore, Thailand, China, etc.
- Capitalism functions efficiently with very little guidance or supervision.
- Private businesses are far more efficient than government-run enterprises in a capitalistic society because of the need to make a profit in a competitive environment.
- Socialism, at its best, provides people with basic needs and none of the rest.
The World Economy:
The chart below which shows the Gross Domestic Product by Country in 2017, which I found most interesting in light of this series. My first takeaway was the relative absence of any countries with a socialistic economy. (Note: Today China has a capitalistic economy which we will learn more about in segment 16)
Shown below is the share of the World GDP by five major players; India, China, U.K & France & Germany, Japan, and the United States from 1820 through 2008 which I put in tabular form below.
You can certainly see the positive impact of the Industrial Revolution (capitalism) via the change from 1820 to 1913 on the U.K., France, & German group as well as the U.S. and the negative consequences of no Industrial Revolution (no capitalism) on India and China. Additionally, you can see the impact of China when it started to move to a capitalistic economy in 1976 continuing to today.
Next:
The next segment of the series titled “The U.S. Founding Father’s Perspective on Socialism.”
Happy Learning,
Harley
Next:
The next segment of the series titled “The U.S. Founding Father’s Perspective on Socialism.”
Happy Learning,
Harley
SOCIALISM – SEGMENT 5
SOCIALISM VS. CAPITALISM -- EXCERPTS
THE SOVEREIGN CONSUMER: The characteristic feature of modern capitalism is mass production of goods destined for consumption by the masses. The result is a tendency towards a continuous improvement in the average standard of living, a progressing enrichment of the many. It is in this ascension of the multitude in which the radical social change brought about by the “Industrial Revolution” consists. Those underlings who in all the preceding ages of history had formed the herds of slaves and serfs, of paupers and beggars, became the buying public, for whose favor the businessmen canvass. They are the customers who are “always right,” the patrons who have the power to make poor suppliers rich and rich suppliers poor.
The profit system makes those men prosper who have succeeded in filling the wants of the people in the best and cheapest way. Wealth can be acquired only by serving the consumers. The capitalist lose their funds as soon as they fail to invest them in those lines in which they satisfy best the demands of the public. The consumers determine who should own and run the plants, shops, and farms. This is what the modern concept of freedom means. Every adult is free to fashion his life according to his own plans. He is not forced to live according to the plan of a planning authority enforcing its unique plan by the police.
THE URGE FOR ECONOMIC BETTERMENT: There is but one means available to improve the material conditions of mankind: to accelerate the growth of capital accumulated as against the growth in population. The greater amount of capital invested per head of the worker, the more and the better goods can be produced and consumed. This is what capitalism, the much-abused profit system, has brought about and brings about daily anew. Capitalism is essentially a system of mass production for the satisfaction of the masses. It pours a horn of plenty upon the common man. It has raised the average standard of living to a height never dreamed of in earlier ages. It has made accessible to millions of people enjoyments which a few generations ago were only within the reach of a small elite.
THE ANTI-CAPITALIST FRONT: People do not ask for socialism because they know that socialism will improve their conditions, and they do not reject capitalism because they know that it is a system prejudicial to their interests. They are socialists because they believe that socialism will improve their conditions, and they hate capitalism because they believe that it harms them. They are socialists because they are blinded by envy and ignorance. They stubbornly refuse to study economics and spurn the economists’ devastating critique of the socialist plans because, in their eyes, economics being an abstract theory, is simply nonsense. But they no less stubbornly refuse to take cognizance of the undeniable facts of experience, viz., that the common man’s standard of living is incomparably higher in capitalistic America than in the socialist paradise of the Soviets.
Socialist planning means that the plan of the government should be substituted for the plans of the individual citizens. It means that the entrepreneurs and capitalists should be deprived of the discretion to employ their capital according to their own designs and should be obliged to comply unconditionally with the orders issued by a central planning board or office.
HELPING POOR NATIONS: No one contests that what makes hundreds of millions in Asia and Africa destitute is that they cling to primitive methods of production and miss the benefits which the employment of better tools and up-to-date technological designs could bestow upon them. But there is only one means to relieve their distress – namely, the full adoption of laissez-faire capitalism. What they need is private enterprise and the accumulation of new capital, capitalists and entrepreneurs. It is nonsensical to blame capitalism and the capitalistic nations of the West for the plight the backward peoples have brought upon themselves.
SOCIAL INJUSTICE AND FREEDOM: The age of capitalism has abolished all vestiges of slavery and serfdom. It put an end to cruel punishments and reduced the penalty for crimes committed to the minimum indispensable for discouraging offenders. It has done away with torture and other objectionable methods of dealing with suspect and law breakers. It has repealed all privileges and promulgated equality of all men under the law. It has transformed the subject of tyranny into free citizens.
Source: The Anti-Capitalistic Mentality by Ludwig von Mises.
GOVERNMENT VS. FREE ENTERPRISE: Decades of research in economics (and simple experience) show that government-run enterprises are, as a rule, vastly more inefficient, and offer products or services of far worse quality that private businesses. In a free market economy, businesses that do a good job of giving people what they want at competitive prices are rewarded with profits. If they fail at that task they are penalized with losses or bankruptcy. This is known as the “survivor principle:” businesses that fail to satisfy enough customers will not survive. No such mechanism exists in government enterprises, for there are no profit-and-loss statements, there are only budgets. Indeed, in government, the worse a government performs, the more money it can claim from a legislature, city council, or county commission. If state-run-schools fail to educate children, they obviously need more money. If the welfare state fails to reduce, or actually increase, poverty then obviously, say the bureaucrats, we need to expand welfare programs even further.
Unlike private business, government enterprises, supported by the taxpayers, can last for generations providing shoddy services at extremely high costs. Bureaucrats do not advance in their careers through entrepreneurship, innovation, improving quality, and lowering costs. Their success is based on political skills. With its access to the taxpayer’s purse, government is able to pay its employees significantly more than comparable private-sector employees. According to the U.S. Bureau of Labor Statistics, state and local government employees earn 35% higher wages and 69% greater benefits than private industry employees. In addition, they typically have far better job security as well; civil service regulations and the power of public employee unions make it difficult if not virtually impossible in some states to fire public employees. Even during the “Great Recession: of 2008, in many states private sector employment plummeted while government employment expanded.
Even if a government enterprise is managed by purely well-meaning, ethical bureaucrats, it still needs a bigger budget to do more “good.” Every government bureaucrat is therefore a relentless lobbyist for higher taxes and more money for his or her government agency. He is, in other words, an inveterate cost maximizer. The fact that most government enterprises have little or no competition means that they also suffer from managerial laziness and ineptitude compared to private businesses that face competition.
Source: The Problem with Socialism by Thomas J. DiLorenzo
THE SOCIALIST TRAP: Comfort, ease, and security are difficult to let go for the sake of long-term prosperity. Most people in countries ruined by socialism are in that trap. They don’t want to let go of their pensions, monthly checks, food stamps, insurance, housing, transportation, or anything coming to them gratis from the government. People on welfare grow content to leave the burden of their financial and medical care in the nest of another’s labors. Socialism’s promise of an easy life feels good until enough time has passed and financial reality sneaks up and quickly turns deadly. The appeal to embrace the hopes for an easier life may seem right at first. But when a socialistic takeover has reached its goal, there is deadly betrayal for which hundreds of millions have been sacrificed already. The hope for free money from everyone else, a government handout, welfare, entitlements, a bit of nothing that seemed so important and desirable at first, soon turns out to be a trap holding fast those who can’t let go, from which the only escape is death.
Source: The Naked Socialist by Paul B. Skousen
FREE ENTERPRISE CAPITALISM: While nations which toyed with Socialism and Communism progressed slowly, stood still or slide backwards, capitalism rolled steadily on. Two things in particular have made modern capitalism increasingly successful. First, its capacity to satisfy the inherent need and desires of man and second, its capacity to function efficiently with very little guidance or supervision. It is sometimes called a natural system of economics because it tends to adjust automatically to human requirement.
THE NATURE OF MAN: On the physical side, we observe that man is an elaborate and complex organism. A vast array of human needs grows out of man’s desire to avoid pain and discomfort and achieve physical satisfaction and pleasure from life. Some of these would be satisfying hunger, quenching thirst, satisfying tastes, being warm in cold weather and cool in warm weather, avoiding illness, begin relieved of pain, having comfortable and attractive clothes, and having a comfortable home and surroundings.
On the spiritual side, man, as an intelligent, self-knowing, self-determining being, is capable of having strong feelings ranging all the way from sublime hope to deep fear and despair. Sometimes these are very real and result in a wide pattern of intellectual or spiritual needs: to be of individual importance so as to count for something as a person; to be a party in interest – to be identified with the system; to enjoy owning “things,” to be appreciated for some unique and important contribution, to have a satisfactory degree of economic security, to feel the satisfaction of sacrificing or risking something to achieve progress, to have the opportunity for creativity, to feel family solidarity, to enjoy the right of privacy, to have freedom of expression in matters of importance, to be protected in conviction of religion and conscience, to feel significant in determining matter of political importance.
In studying the nature of man, it soon becomes apparent that his “mainspring of action” is the driving necessity to satisfy both physical and spiritual needs. Many economic systems which men have invented tend to smother or ignore these needs. To that same extent these systems are bound to smother man’s greatest source of motivating power – the anxiety to satisfy these deep throbbing human desires. Forty years of Communism in the USSR have eloquently confirmed this. The Communist leaders have suppressed the natural desires of their people and have tried to motivate them to action through fear. But this has not worked because fear is primarily a depressant instead of a stimulant. “Work through fear” can never compete successfully with the tantalizing opportunity provided by capitalism to constantly satisfy natural human needs. Satisfying these needs is almost the entire source of power for capitalism’s productivity momentum.
Capitalism gives full vent to this principle by encouraging men to continually seek cheaper sources of power and try to develop more efficient machines to do the world’s work instead of using human and animal muscle. Even as late as 1900 over 50% of U.S. power was provided by animals and men, but under a half century of capitalistic development they now supply only 2% of the power. The rest comes from machines. Other political and economic systems claim to be in favor of mechanization, but no other system is able to promote technological development as rapidly a capitalism because competitive survival becomes so important that it makes it worthwhile to throw away machines as soon as they become obsolete.
The genius of capitalism is not merely that it satisfies the desires and needs of mankind generally, but it responds to the factor of variation between individuals. It allows each man to do anything he wishes as long as he can survive at it. To a remarkable extent it allows a man to do just about what he wants to do.
IT’S A GREAT SYSTEM: Here is a summary of what it is doing:
The unabbreviated version of the above can be found in the pdf document below.
SOCIALISM VS. CAPITALISM -- EXCERPTS
THE SOVEREIGN CONSUMER: The characteristic feature of modern capitalism is mass production of goods destined for consumption by the masses. The result is a tendency towards a continuous improvement in the average standard of living, a progressing enrichment of the many. It is in this ascension of the multitude in which the radical social change brought about by the “Industrial Revolution” consists. Those underlings who in all the preceding ages of history had formed the herds of slaves and serfs, of paupers and beggars, became the buying public, for whose favor the businessmen canvass. They are the customers who are “always right,” the patrons who have the power to make poor suppliers rich and rich suppliers poor.
The profit system makes those men prosper who have succeeded in filling the wants of the people in the best and cheapest way. Wealth can be acquired only by serving the consumers. The capitalist lose their funds as soon as they fail to invest them in those lines in which they satisfy best the demands of the public. The consumers determine who should own and run the plants, shops, and farms. This is what the modern concept of freedom means. Every adult is free to fashion his life according to his own plans. He is not forced to live according to the plan of a planning authority enforcing its unique plan by the police.
THE URGE FOR ECONOMIC BETTERMENT: There is but one means available to improve the material conditions of mankind: to accelerate the growth of capital accumulated as against the growth in population. The greater amount of capital invested per head of the worker, the more and the better goods can be produced and consumed. This is what capitalism, the much-abused profit system, has brought about and brings about daily anew. Capitalism is essentially a system of mass production for the satisfaction of the masses. It pours a horn of plenty upon the common man. It has raised the average standard of living to a height never dreamed of in earlier ages. It has made accessible to millions of people enjoyments which a few generations ago were only within the reach of a small elite.
THE ANTI-CAPITALIST FRONT: People do not ask for socialism because they know that socialism will improve their conditions, and they do not reject capitalism because they know that it is a system prejudicial to their interests. They are socialists because they believe that socialism will improve their conditions, and they hate capitalism because they believe that it harms them. They are socialists because they are blinded by envy and ignorance. They stubbornly refuse to study economics and spurn the economists’ devastating critique of the socialist plans because, in their eyes, economics being an abstract theory, is simply nonsense. But they no less stubbornly refuse to take cognizance of the undeniable facts of experience, viz., that the common man’s standard of living is incomparably higher in capitalistic America than in the socialist paradise of the Soviets.
Socialist planning means that the plan of the government should be substituted for the plans of the individual citizens. It means that the entrepreneurs and capitalists should be deprived of the discretion to employ their capital according to their own designs and should be obliged to comply unconditionally with the orders issued by a central planning board or office.
HELPING POOR NATIONS: No one contests that what makes hundreds of millions in Asia and Africa destitute is that they cling to primitive methods of production and miss the benefits which the employment of better tools and up-to-date technological designs could bestow upon them. But there is only one means to relieve their distress – namely, the full adoption of laissez-faire capitalism. What they need is private enterprise and the accumulation of new capital, capitalists and entrepreneurs. It is nonsensical to blame capitalism and the capitalistic nations of the West for the plight the backward peoples have brought upon themselves.
SOCIAL INJUSTICE AND FREEDOM: The age of capitalism has abolished all vestiges of slavery and serfdom. It put an end to cruel punishments and reduced the penalty for crimes committed to the minimum indispensable for discouraging offenders. It has done away with torture and other objectionable methods of dealing with suspect and law breakers. It has repealed all privileges and promulgated equality of all men under the law. It has transformed the subject of tyranny into free citizens.
Source: The Anti-Capitalistic Mentality by Ludwig von Mises.
GOVERNMENT VS. FREE ENTERPRISE: Decades of research in economics (and simple experience) show that government-run enterprises are, as a rule, vastly more inefficient, and offer products or services of far worse quality that private businesses. In a free market economy, businesses that do a good job of giving people what they want at competitive prices are rewarded with profits. If they fail at that task they are penalized with losses or bankruptcy. This is known as the “survivor principle:” businesses that fail to satisfy enough customers will not survive. No such mechanism exists in government enterprises, for there are no profit-and-loss statements, there are only budgets. Indeed, in government, the worse a government performs, the more money it can claim from a legislature, city council, or county commission. If state-run-schools fail to educate children, they obviously need more money. If the welfare state fails to reduce, or actually increase, poverty then obviously, say the bureaucrats, we need to expand welfare programs even further.
Unlike private business, government enterprises, supported by the taxpayers, can last for generations providing shoddy services at extremely high costs. Bureaucrats do not advance in their careers through entrepreneurship, innovation, improving quality, and lowering costs. Their success is based on political skills. With its access to the taxpayer’s purse, government is able to pay its employees significantly more than comparable private-sector employees. According to the U.S. Bureau of Labor Statistics, state and local government employees earn 35% higher wages and 69% greater benefits than private industry employees. In addition, they typically have far better job security as well; civil service regulations and the power of public employee unions make it difficult if not virtually impossible in some states to fire public employees. Even during the “Great Recession: of 2008, in many states private sector employment plummeted while government employment expanded.
Even if a government enterprise is managed by purely well-meaning, ethical bureaucrats, it still needs a bigger budget to do more “good.” Every government bureaucrat is therefore a relentless lobbyist for higher taxes and more money for his or her government agency. He is, in other words, an inveterate cost maximizer. The fact that most government enterprises have little or no competition means that they also suffer from managerial laziness and ineptitude compared to private businesses that face competition.
Source: The Problem with Socialism by Thomas J. DiLorenzo
THE SOCIALIST TRAP: Comfort, ease, and security are difficult to let go for the sake of long-term prosperity. Most people in countries ruined by socialism are in that trap. They don’t want to let go of their pensions, monthly checks, food stamps, insurance, housing, transportation, or anything coming to them gratis from the government. People on welfare grow content to leave the burden of their financial and medical care in the nest of another’s labors. Socialism’s promise of an easy life feels good until enough time has passed and financial reality sneaks up and quickly turns deadly. The appeal to embrace the hopes for an easier life may seem right at first. But when a socialistic takeover has reached its goal, there is deadly betrayal for which hundreds of millions have been sacrificed already. The hope for free money from everyone else, a government handout, welfare, entitlements, a bit of nothing that seemed so important and desirable at first, soon turns out to be a trap holding fast those who can’t let go, from which the only escape is death.
Source: The Naked Socialist by Paul B. Skousen
FREE ENTERPRISE CAPITALISM: While nations which toyed with Socialism and Communism progressed slowly, stood still or slide backwards, capitalism rolled steadily on. Two things in particular have made modern capitalism increasingly successful. First, its capacity to satisfy the inherent need and desires of man and second, its capacity to function efficiently with very little guidance or supervision. It is sometimes called a natural system of economics because it tends to adjust automatically to human requirement.
THE NATURE OF MAN: On the physical side, we observe that man is an elaborate and complex organism. A vast array of human needs grows out of man’s desire to avoid pain and discomfort and achieve physical satisfaction and pleasure from life. Some of these would be satisfying hunger, quenching thirst, satisfying tastes, being warm in cold weather and cool in warm weather, avoiding illness, begin relieved of pain, having comfortable and attractive clothes, and having a comfortable home and surroundings.
On the spiritual side, man, as an intelligent, self-knowing, self-determining being, is capable of having strong feelings ranging all the way from sublime hope to deep fear and despair. Sometimes these are very real and result in a wide pattern of intellectual or spiritual needs: to be of individual importance so as to count for something as a person; to be a party in interest – to be identified with the system; to enjoy owning “things,” to be appreciated for some unique and important contribution, to have a satisfactory degree of economic security, to feel the satisfaction of sacrificing or risking something to achieve progress, to have the opportunity for creativity, to feel family solidarity, to enjoy the right of privacy, to have freedom of expression in matters of importance, to be protected in conviction of religion and conscience, to feel significant in determining matter of political importance.
In studying the nature of man, it soon becomes apparent that his “mainspring of action” is the driving necessity to satisfy both physical and spiritual needs. Many economic systems which men have invented tend to smother or ignore these needs. To that same extent these systems are bound to smother man’s greatest source of motivating power – the anxiety to satisfy these deep throbbing human desires. Forty years of Communism in the USSR have eloquently confirmed this. The Communist leaders have suppressed the natural desires of their people and have tried to motivate them to action through fear. But this has not worked because fear is primarily a depressant instead of a stimulant. “Work through fear” can never compete successfully with the tantalizing opportunity provided by capitalism to constantly satisfy natural human needs. Satisfying these needs is almost the entire source of power for capitalism’s productivity momentum.
Capitalism gives full vent to this principle by encouraging men to continually seek cheaper sources of power and try to develop more efficient machines to do the world’s work instead of using human and animal muscle. Even as late as 1900 over 50% of U.S. power was provided by animals and men, but under a half century of capitalistic development they now supply only 2% of the power. The rest comes from machines. Other political and economic systems claim to be in favor of mechanization, but no other system is able to promote technological development as rapidly a capitalism because competitive survival becomes so important that it makes it worthwhile to throw away machines as soon as they become obsolete.
The genius of capitalism is not merely that it satisfies the desires and needs of mankind generally, but it responds to the factor of variation between individuals. It allows each man to do anything he wishes as long as he can survive at it. To a remarkable extent it allows a man to do just about what he wants to do.
IT’S A GREAT SYSTEM: Here is a summary of what it is doing:
- Capitalism is by far the best-known system to provide for the physical needs of man
- Capitalism permits man to satisfy his spiritual needs
- Capitalism allows for variation between individuals
- Capitalism is naturally self-expanding which tends to create strong economic ties between communities, states and nations
- Capitalism can permit everyone to participate in making a profit
- Capitalism promotes the individual the “freedom to try.”
- Capitalism promotes the individual the “freedom to sell.”
- Capitalism promotes the individual the “freedom to buy.”
- Capitalism preserves the greatest single force of human motivation; the risk of failure
- Capitalism tends to increase the wages of workers in relation to prices
- Capitalism tends to reduce the hours of work necessary to make a living
- Capitalism increases the worker’s share of the national income
- Capitalism promotes rapid technological advances
- Capitalism is proving to be the most effective means mankind has yet discovered for “sharing the wealth.”
The unabbreviated version of the above can be found in the pdf document below.
| 5_soc_capitalism_vs._socialism.pdf |